Author Topic: Screw resale value?  (Read 5146 times)

Gerard

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Screw resale value?
« on: July 05, 2013, 08:08:51 AM »
I don't usually post in this area, so please bear with me if this has all been hashed out before (just throw me a link to an earlier thread!).

When you're buying a property to actually live in yourself, how do you feel about downplaying easy/profitable resale, in order to pay much less for something that satisfies your minimal or idiosyncratic needs? In other words, I guess, to buy something that's cheap because nobody else is likely to want it? In my case, for example, a Toronto condo in a building that hasn't participated in the city's big price increases because it's full of brown people, smells like curry, and (15 years ago) had gangs. Or a St. John's (Newfoundland) house that remains cheap because it's tiny, it has absolutely no parking, and frankly it's kind of ugly. For both homes, most of these traits are either neutral or somewhat positive. But I know I can't depend on price appreciation when I eventually sell or big rent if I eventually rent, because very few people share my perspective.

Are there other people out there with a similar strategy? What factors do you consider when deciding things like this?

arebelspy

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Re: Screw resale value?
« Reply #1 on: July 05, 2013, 08:38:30 AM »
You make your money when you buy.

If you pay a low price for it because no one wants it, then resell it low, it shouldn't cost you much at all.

I probably wouldn't phrase it "screw resale value" (and likely wouldn't drastically make changes that would LOWER resale value, unless I was going to be there a long time and/or the changes would make me much happier), but in a situation like that resale value won't matter so much because the initial purchase price should be quite low.
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Another Reader

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Re: Screw resale value?
« Reply #2 on: July 05, 2013, 08:53:15 AM »
I look for properties that with some creative thinking can be turned around.  For example, I would consider buying the low priced condo if I could get some high income hipster acquaintances to buy in as well and renovate.  Turn the building into a desirable place to live through reverse "block busting," i.e. gentrification.  I would consider the Newfoundland house if I could solve the parking problem, improve the flow and re-do the exterior inexpensively.  Buy low, be creative, and reap the rewards at the time of sale.

mpbaker22

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Re: Screw resale value?
« Reply #3 on: July 05, 2013, 09:17:51 AM »
I think "it will have good resale value" is one of the biggest fallacies in purchasing a home.
Sure, if you're paying $200K for a house regardless, pick the one with higher resale value, but that should, at least theoretically, be built into the price already. 
For example - "I don't want to buy there because the schools will drop the resale value."  Bullshit!  The schools are dropping your purchasing value.  The resale should be dropped accordingly, not in an uncorrelated manner.
"Resale Value" is often just code for, "I want to spend more than I should."

Though there is always the oddball case.

velocistar237

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Re: Screw resale value?
« Reply #4 on: July 05, 2013, 10:46:22 AM »
I thought you were going to give me permission to put a squat toilet in my new bathroom.

A $200K house with an $8K/year opportunity cost would have to appreciate by 2% per year beyond inflation to break even on cost with a $100K house with a $4K/year opportunity cost. From a financial perspective, it's often best to buy the cheapest house you can be happy with.

Cheap house : expensive, appreciating house :: high savings rate : relying on good market returns

Gerard

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Re: Screw resale value?
« Reply #5 on: July 05, 2013, 03:08:30 PM »
I would consider the Newfoundland house if I could solve the parking problem, improve the flow and re-do the exterior inexpensively. 

But it's the near-impossibility of doing so that makes the house so cheap! Which is why I'm tempted to say, screw resale value, I'll optimize it to maximally suit my needs, and hope that when it's time to sell, I can find at least one buyer who has the same idiosyncratic checklist I do (i.e., maybe I will go for that squat toilet!).

Thanks to all for the comments and observations so far.

Another Reader

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Re: Screw resale value?
« Reply #6 on: July 05, 2013, 03:35:50 PM »
Post some pictures and I will bet this group will give you some ideas....

fiveoclockshadow

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Re: Screw resale value?
« Reply #7 on: July 06, 2013, 07:10:59 AM »
Cheap house : expensive, appreciating house :: high savings rate : relying on good market returns

That is an excellent concise summary.  Never seen it stated more compactly.

And worth noting that over the long term real estate returns are pretty poor, so the choice on the right only works out well with speculative market timing (i.e. buying "low", which means properly estimating when "low" is).

I, unfortunately, am presently on the right - but I did buy at what at least has a fair chance of being "low" so I might do OK in the end.  Only time will tell...

Another Reader

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Re: Screw resale value?
« Reply #8 on: July 06, 2013, 07:24:52 AM »
I completely disagree with this statement.  My real estate returns, including net rental income, have consistently exceeded the return on indexed equities.  You are compensated for your risk and your investment knowledge and management.  My net worth is largely real estate and it would be nowhere near what it is today if I had dollar cost averaged the same money into VTI.

velocistar237

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Re: Screw resale value?
« Reply #9 on: July 06, 2013, 10:10:18 AM »
I completely disagree with this statement.  My real estate returns, including net rental income, have consistently exceeded the return on indexed equities.  You are compensated for your risk and your investment knowledge and management.  My net worth is largely real estate and it would be nowhere near what it is today if I had dollar cost averaged the same money into VTI.

Not clear what you're disagreeing with here. We're talking about the house you live in, not rentals and other real estate investments.

arebelspy

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Re: Screw resale value?
« Reply #10 on: July 08, 2013, 11:41:20 AM »
That's a good analogy.

AR, if you aren't familiar with that terminology, replace : with "is to" and :: with "as"
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

StubblyGino

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Re: Screw resale value?
« Reply #11 on: July 11, 2013, 10:27:19 AM »
I'm assuming that you are talking about the row housing in central st. john's / downtown area.... (i.e. alot of stuff between duckworth street and empire avenue)
you have to be very careful when buying houses in those areas as you basically can do no work on the exteriors (historical reasons I believe)....
I have seen some of those houses that look very rough on the outside and are very nicely remodeled on the inside. 


I guess another question is if you can get by without a car? 
St. John's may be the least bicycle friendly city in canada.

Also.... you may want to assess insurance costs for living in row housing in st. john's considering how old the homes are and the fact they are attached.
« Last Edit: July 11, 2013, 10:32:59 AM by StubblyGino »

StubblyGino

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Re: Screw resale value?
« Reply #12 on: July 11, 2013, 10:56:20 AM »
A link for those who may not know what kind of housing he is talking about.

http://www.realtor.ca/propertyDetails.aspx?propertyId=13105115&PidKey=-1649454912


Gerard

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Re: Screw resale value?
« Reply #13 on: July 24, 2013, 02:50:06 PM »
OP here. I should have been clearer earlier -- I actually already own these two places. I'm just looking for general principles or opinions here, either to reassure myself or to plan toward the next place I buy.

I'm assuming that you are talking about the row housing in central st. john's / downtown area

Yes. Well, same style, but for odd reasons my place is actually detached.

I have seen some of those houses that look very rough on the outside and are very nicely remodeled on the inside. 
I fear that would be lipstick inside a pig in my case.

I guess another question is if you can get by without a car? 
St. John's may be the least bicycle friendly city in canada.
Yes and yes. Luckily the house is within walking distance of my job and downtown.

Dicey

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Re: Screw resale value?
« Reply #14 on: July 25, 2013, 01:54:36 PM »
Gotta laugh, Gerard. This is so my universe at the moment. First, let me reiterate that we are talking about a primary home here, not an investment property.

We're basically doing the same thing at the other end of the price spectrum. We are about to buy a house that we never dreamed of living in. One, because of the price (close to 1M), and two, because of the level of finishes in the house. It is a six-year-old, custom built house. Much fancier than our tastes require.

We came across this house in our search for a home where my MIL, who has Alzheimer's, can live with us. She is very healthy and we expect her to last for at least another ten years. Yes, there is long-term care insurance, but she's not at that stage yet. We were searching for a 4BD, 3BA (no grandmother should have to share a bath with a 21-yo male college student) home with no pool (In CA, pools are very common.) and this one came up.

The home is a short sale, in part because it is overimproved for the neighborhood. Fortunately, it does not look as fancy as it really is from the exterior. It is a single story, has a good layout for our situation and best of all, is three blocks from DH's work.

We've decided to make this our home for the next decade. By then my MIL will require long-term care if she is still alive, the college student will be up and out and DH will be ready to retire. We will meticulously maintain the home so it will be easy to sell, but we do not expect to make anything but the rate of inflation on the house. DH and I (we're newlyweds) have both done well in the real estate market, so we're not looking to make a killing on this property. We're buying the overimproved house with little room for upside appreciation, because it fits our family's needs for a relatively long time period.

It's been a surprisingly hard decision (especially since it's a short sale and we've been in escrow for six months). Technically we can "afford" this house, but it goes against everything Mustachian that we believe in. I guess all I can say is that I feel your pain, Gerard. Good luck, whatever you decide.